According to the news report by CNBC, Skechers USA Inc. shares skyrocketed by 15.2% on Friday after the shoe company reported better-than-expected Q4 earnings on Thursday evening. The company also gave a solid forecast for the quarter.
The company’s Chief Operating Officer David Weinberg stated that 2018 was a record year in terms of sales. According to him, Skechers saw its first Q4 that generated over $1 billion in sales. Weinberg said that combining all the quarters’ sales, the company had record annual sales of $4.64 billion.
Skechers gave a Q1 2019 earnings forecast of between $0.70 per share on and $0.75 per share revenues of between $1.28 billion and $1.30 billion. The market analyst expectation was much lower at $0.63 per share.
Sketchers reported that its earnings in the fourth quarter were $0.31 per share, which was well above the Wall Street expectation of $0.23 per share.
According to Cowen, Skechers strategy of strong cost control led to the quarter’s strong results.
The company also stated that it had seen record breaking sales to the tune of $1.08 billion in quarter 4. This was partially due to an 18.4% increase in sales in the international wholesale segment. The challenge the company faced was that the strong dollar impacted conversion. US locations only saw a 0.4% increase in sales in comparison.
Same-store sales for the shoe company were up by 1.1% and gross margins went up by 90 basis points to 47.7%.
According to Evercore ISI analysts, while the fourth quarter results were welcome, the biggest lesson was that Skechers made a huge effort to prioritize those measures that would enhance profits in its planning process. Analysts also said that it seemed that the company’s management was using a more balanced planning process so that it could better anticipate as well as react to changing consumer demands.
According to Barron’s, Skechers still has to watch out for competition from Nike. While Skechers chalked up record sales in 2018, and Nike lost, both companies’ stocks are up this week. And while Skechers recorded double digit increases in its stock price, analysts feel that Nike will win the long run.
This is because despite stellar results in the fourth quarter, Skechers’ stocks are down by 20% for the last 12 months.
John Kernan, the analyst at Cowen & Co., kept his Market Perform rating for the company. However, he did increase his share price target from $28 to $34. Kernan stated that while he believed that earnings and a strong balance sheet could warrant multiple expansions by the company, he said he also believed that increased costs would impact cash flow.
Sam Poser, the analyst from Susquehanna kept his Neutral rating for Skechers, but he too, like Kernan, raised his share price target from $24 to $32. He explained that two strong quarters did not qualify as a trend, however, the company was showing for the first time in a long time that it was willing to improve profitability even if it meant sacrificing on some sales.
In contrast, Brian Nagel from Oppenheimer kept his Outperform rating for Nike and also raised his share price target from $90 to $100. He explained that he had become even more impressed by the company’s underlying operating efficiency as well as its brand. He said this based on the company’s sales, strong discipline in inventory control across the globe as well as its pricing power that was supporting higher margins.
Currently, Nike’s share price is up by 0.1% to trade at $82.45, while Skechers’ share price has grown by 17.2% to trade at $33.48.